Canadian Dollar Uncertainty as Bank of Canada Signals Caution

The Canadian dollar faces uncertainty as the Bank of Canada signals caution: key data and mixed sentiment impact USD/CAD. Trendline support has been tested.

In recent developments, the Canadian dollar is experiencing heightened volatility as the Bank of Canada (BoC) hints at a more cautious approach. The minutes from the latest BoC meeting suggest a less aggressive stance; however, they focus on the progress made in addressing inflation concerns. Despite a marginal beat in Tuesday’s economic metrics, there is no significant upside shift, leading to increased speculation about the peak of the BoC’s interest rate cycle.

Today’s economic calendar holds critical data for Canada, including average weekly earnings and retail sales figures. Earnings, a crucial factor for the BoC, may decline. Market participants eagerly await retail sales data to assess the impact of recent monetary policies on October consumer demand.

Canadian Dollar Uncertainty as Bank of Canada Signals Caution

From a USD perspective, attention is also on US GDP, jobless claims, and core PCE figures scheduled for later today. The expectation of a sharp increase in GDP could stabilize the weakening US dollar. Federal Reserve officials, including Harker, are pushing back against early rate cuts, and this sentiment might gain traction within the central bank.

In the USD/CAD price action, bears are testing the long-term trendline support zone, which has held firm since June 2021. Although the Relative Strength Index (RSI) indicates momentum moving out of oversold territory, the possibility of a break below trendline support looms. Bulls seeking a reversal should exercise caution, as a support break could trigger a significant drop towards the psychological level of 1.3200.

Key resistance levels to watch include 1.3600, 1.3575, 1.3500 (200-day MA), and 1.3373. On the downside, key support levels include the trendline support, 1.3300, and 1.3200.

Mixed Sentiment Among Retail Traders

IG Client Sentiment Data reveals a mixed sentiment among retail traders for USD/CAD. As of the latest update, 76% of traders hold long positions, reflecting optimism. However, daily changes show a 5% decrease in long positions, a 2% decrease in shorts, and a 4% decrease in overall open interest. Moreover, weekly data indicates a 44% increase in longs, a 16% decrease in shorts, and an 18% increase in open interest. After all, the conflicting data suggests uncertainty and varied opinions among retail traders regarding the future direction of USD/CAD.

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